The prospects of recovery for the Australian dairy industry look bright, according to the sector's trade body.

Dairy Australia today (26 June) issued the upbeat outlook following research from the country's Australian Bureau of Agricultural and Resource Economics (ABARE).

The governmental unit has forecast that the value of Australia's dairy exports would increase by 8.5% to A$2.5bn (US$2.1bn) in 2007/08.

Dairy Australia said that despite a number of local shocks to the industry, including a severe drought, the prospect of strong milk prices is giving dairy farmers confidence to invest in their businesses.

"The ability to recover quickly from the drought once there is a wide-spread break in seasonal conditions will depend largely on the financial situation of individual farmers, availability of irrigation water and the ability to rebuild herds," said Jo Bills, manager of strategic analysis at Dairy Australia.